Small and Medium Enterprises (SMEs) have not only taken a big hit after demonetisation, they have been suffering from government policies that incentivise them to stay small, says Gopal Jiwarajka, the President of PHD Chamber of Commerce and Industry (PHDCCI), in an interview.
Jiwarajka says the Budget must offer relief to the demonetisation-hit SME sector and GST should be kept simple to save the SME units unnecessary troubles. He thinks a less-cash economy could happen over time but can’t be suddenly imposed on people. Here are the edited excerpts from the interview:
Q: What is the impact of demonetisation on the SME sector?
A: The SME sector deposited in banks capital which was deployed in business and is now not available to them. If you take out working capital from any industry, it will suffer. So, the SME has seen maximum impact of demonetization.
The banking channels are not very generous for the SME sector. The SMEs are cautious too. Given their small size, they have numerous small transactions in cash. Also, most people in the sector are not digitally literate. Cash transactions reduced after demonetisation and that hurt them. In Tier-II and Tier-III cities, less cash was provided to banks and that too was supplied late. People tended to keep cash with them as they were unsure about its availability. As they are not spending it, demand is getting hurt. So, one, the transactions are not taking place; two, there is no working capital; and three, demand has been affected. So, a large number of SME units have been badly hit. A lot of units have even shut down. Bullion traders, textile traders, construction sector, these are all in a shambles. Maybe they will recover soon, and maybe some will not recover at all.
The sentiment that was positive has turned negative due to demonetisation. We hope the government takes enough proactive measures till the Budget and in the Budget to turn the sentiment positive again.
Q: Which government policies are hurting the SME sector?
A: First, it is necessary to redefine the SME sector. The current way of defining the SME units is not right. Only investment cannot be the criterion. The government is considering if other criteria could be adopted such as the number of people employed and the size of business and capital. The biggest problem for the SME sector is getting banking finance. Policies should not only support the SME sector but also incentivise the units to grow out of the category. We should not incentivise anybody to remain small. The policies must ensure that the SME units should not remain small forever.
Q: Your view on less-cash economy?
A: Less-cash economy is always welcome. Initially, the talk was of cashless economy. Thankfully, the government started calling for a less-cash economy. From the day one, we have said that a cashless economy is a utopian idea but a less-cash one is desirable. There are a few hurdles in the way of the less-cash economy. I think our country doesn’t have the backbone to carry out such extensive digital transactions right now. The security needed for digital transactions is not fully in place. Large deployment of interfaces like POS, ATM machines will take time. Customer literacy and awareness is also an issue. The process of going less-cash should happen over time. It cannot be done instantly. You cannot say that it has to happen today even if people suffer. I don’t think it will be the right move.
Another hurdle in the way to a less-cash society is the cost of digital transactions as customers and merchants have to pay extra charges. There shouldn’t be any extra charges for digital transactions and the government should rather incentivise them. The government should include NEFT/RTGES payments under digital transactions.
Q: What are the suggestions and expectations from Union Budget?
A: We have asked for a lower corporate tax rate and raising of exemption limit for personal tax. We also want reduction in the rate of MAT. We have asked the government to remove sunset period from the MAT. It is our money. Why should it go into the sunset? At least, the period should be extended. Also, on the income tax front, we have suggested that if the assessee wins in the case in the High Court, the government should take it as final and not wait for Supreme Court order. That’s for two reasons: one, the SC takes very long time; and two, government’s success rate in the SC is less than 10 per cent in tax matters.
Q: Do you think Skill India has succeeded in providing skilled labourers to the SME sector?
A: Skill India is a long-term project. It will be too soon to praise or condemn it. It is a very necessary mission in India. It should continue with great vigour and deep focus irrespective of its short-term results.
Q: How will GST impact the SME sector?
A: First, we must see its overall impact. Simplification of law and modification of taxation are two critical aspects of GST. But the government must make sure that moderation of taxation as a concept is not lost in this process. There are a number of clauses in the draft such as the anti-profiteering law which need simplification.
They say the period of show-cause notice would be 36 months. In GST, everything is going online. Credits are coming only when there is online matching. Then why does the government needs 36 months? They should reduce it to six months. The law is not yet out and all I am saying is that the government should not complicate it unnecessarily. The more complex the GST will be, the more problems the SME sector will face. We want GST to be a ‘Good and Suitable Tax’ or ‘Good and Simple Tax’.
Source: Economic Times
Image Courtesy: Economic Times
